Game-Changing China

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Research report: June 2010

Game-Changing ChinaLessons rom China aboutDisruptive Low Carbon Innovation

David Tyfeld, Jun Jin and Tyler Rooker


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NESTA is the National Endowment for Science, Technology and the Arts.

Our aim is to transform the UKs capacity for innovation. We invest inearly-stage companies, inform innovation policy and encourage a culturethat helps innovation to ourish.

About the project

Game-Changing China was commissioned by NESTA and written by David Tyfeld (LancasterUniversity), JIN Jun (Zhejiang University) and Tyler Rooker (Ox ord University). The work wascarried out over a period o eight months in conjunction with the organisation o a workshop onthe theme o Disruptive Low Carbon Innovation in China, held at Zhejiang University, Hangzhou

and co-hosted by Lancaster University in November 2009. The research has involved a mix o deskresearch, interviews and feld visits to our seven case studies. The case studies were selected tore ect a range o initiatives across China. The project was overseen by an advisory group o experts,drawn rom policy, academia and the business community.


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Executive summary

Big hydro, big solar photovoltaic (PV) and bigwind these are the usual ocus o accounts olow carbon technologies in China. But a verydi erent type o innovation ranging rom a

arm cooperative in Yunnan, to woodchip andcorn pellets in rural Beijing and air-conditioningusing just salt and water in Hangzhou andShenzhen could be even more signifcantas examples o how to achieve a low carboneconomy and society or China and the world.

Radical reductions in greenhouse gasemissions are needed i we are to mitigateclimate change. This will require low carbon

innovations that trans orm not only energy-intensive industrial processes but also how wego about everyday practices. For high carboneconomic growth is not merely a matter omarket ailure albeit the greatest example osuch, as Lord Stern has noted but o systems

ailure. Regulations, fnancial structures andincentives, technologies, cultural expectationsand established learning agendas all conditioncontinued lock-in to a model that presupposesthe unsustainable consumption o cheap andabundant ossil uels.

Low carbon innovation in China is an issue okey global signifcance in this regard. This is not

just because o the large and growing carbonootprint o the Chinese economy as a whole,

but also because Chinas spectacular socialand economic growth represents a uniqueopportunity to develop and roll out low carboninnovations. Chinas capacities in science andinnovation are also improving rapidly, so thatit is reasonable to expect that Chinese lowcarbon innovation will be o growing globalsignifcance in the coming decades. And,

ollowing the fnancial crash o 2008, it is clearthat Chinas growing geopolitical in uence hasentered a new phase, which will be a crucial

determinant o global e orts to respond toclimate change.

This report explores the importance o oneorm o low carbon innovation that o ers

considerable opportunities both to China andthe world, but that is usually overlooked:disruptive innovation. The notion o disruptiveinnovation was originally developed byHarvard researcher Clayton Christensen andhas subsequently been applied in many felds,including low carbon innovation. Disruptiveinnovation challenges many o our commonassumptions about innovation; it produces

cheaper, easier-to-use alternatives to existingproducts and services, which target previouslyignored customers. Such innovations are o tenproduced by non-traditional players, andsometimes they exploit existing technologies innovel contexts and combinations.

This report ollows a 2007 NESTA report thatprofled eight disruptive low carbon innovators

rom the UK, and explores the particularimportance o this type o innovation toChina with seven case studies. These are theChinese Game-Changers, each o which hasdeveloped a low carbon innovation that hasthe potential to make a signifcant contributionto emissions reductions and the move to a lowcarbon society. In fve years time, fve o theseinnovations could together be saving up to66 million tonnes o carbon dioxide per year,while the other two will be important playersin markets that could have total savings o270 million tonnes o CO2 per year. These areequivalent to the greenhouse gas emissionso 25 million and 100 million Chinese homesrespectively, or 4 per cent and 16 per cent o

total Chinese emissions in 2006.


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Greater attention to this orm o innovationalongside extant programmes o hi-techinnovation would capitalise on current Chinesestrengths and so accelerate moves to a lowcarbon economy and society, while alsoincubating the world-beating Chinese lowcarbon frms o the uture. It will also maximise

the climate impact o the already-existingtechnologies that will have to deliver the vastmajority o emissions reductions to 2050.Lastly, by demanding a defnition o innovationthat is much broader than high-technologyalone, disruptive low carbon innovationhighlights the need to consider the wider socialand political aspects o innovation that are socrucial to its success ul implementation.

Current policy in China and many othercountries tends to ocus on research anddevelopment or high-technology solutions.The innovations highlighted in this reportinstead suggest that waiting or per ecttechnologies would be a mistake. A broaderunderstanding o innovation would also beparticularly compatible with the needs odeveloping countries such as China; theseinnovations are more appropriate to theChinese domestic market and that o otherdeveloping countries. A greater ocus onsuch technologies would help to engage allstakeholders, including the worlds poorest,in low carbon innovation. It would also

overturn the assumption in vital internationalcollaborations that developing countries canonly ollow the lead o developed nations. Incollaboration with its partners, disruptive lowcarbon innovation represents an opportunity

or China to set the agenda.

First, policy couldcreate moreopportunities for these types ofinnovation to develop and spread. Thediversity o Chinas provinces and therelatively devolved government structurecould be a signifcant strength in incubatinga wide range o experiments, with success ulones leading to broader support at highertiers o government a process that wouldmatch the pragmatic approach o the lastthree decades o economic re orm andopening up. Current fnancial support andinitiatives establishing low carbon zonescould also be opened to these orms oinnovation, beyond the amiliar ocus on hi-tech innovation and R&D.

Second, policymakers couldprovide theright kind of governance , that is, as anenabler rather than director or controller.This will require new ways or government,

innovators and stakeholders to interact,regardless o their existing guanxi(connections or relationships). Re ocusingo fscal and other supports rom hi-techto innovative companies, more broadlydefned, could also signifcantly help manyinnovative companies that are excluded

under current defnitions. Third, policymakers could alsoexploit the

opportunities of low carbon innovationpolicy to improve governance . Traditionalmodes o governance are seriouslychallenged by the need or wide socialparticipation in the transition to a low carbonsociety. Building on Chinas indigenousstrengths or low-cost and low carboninnovation and encouraging widespreadparticipation could help to developgovernance in the medium term.

Finally, policymakers both within and outsideChina (including the UK) couldmaximisethe opportunities for intra-national andinternational learning by involving SMEssuch as these in partnerships, rather than

just academics and large multinationalcorporations. This will require establishmento new plat orms or both ormal andin ormal interactions on a regular basisthat can in turn stimulate substantiveinternational collaborations in innovation,

not just R&D projects.

By explicitly addressing these issues anddeveloping its existing strengths in low carboninnovation, China could lead the global lowcarbon transition that we need in the next 40years.


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Introducing the Game-Changers

GEI is a Chinese NGO that has set up a ull lowcarbon agriculture system or poor armers inthe south-western province o Yunnan. Therehave been many national and internationalprogrammes to encourage the use o anaerobicbiodigesters by Chinese armers to producemethane rom animal slurry that can thenbe used or cooking and heating. Many othese projects, however, have ailed or havehad only temporary e ect because the useo the biodigester has not been success ullyintegrated into the armers everyday practices.GEI has there ore established the necessaryinstitutional mechanisms to make use o biogas

socially sustainable, in the process also shi tingthese arms to organic agriculture with urtheremissions reductions.

Himin is one o Chinas largest producerso solar thermal water tanks, a market thatis in turn dominated globally by Chinesecompanies. The business strategy has beento produce low-cost solutions to energy andheating that directly attract customers andso do not depend upon government subsidy.In the process, Himin has trans ormed thelocal economy o its home town, Dezhou inShandong province, with over 90 per cento amilies now using solar thermal energyin the area and 30 per cent o the work orcein industries related to the sector. The realchallenge or the uture, says CEO and ounderHuang Ming, is whether the company is ready

or the continuing growth in demand over thenext decades.

ISAW has a range o products that buildon CEO Yuan Yijuns scientifc expertise toexploit psychrometric principles, regarding

the di erent physical and thermodynamicproperties o vapour mixtures, to providelow-cost, relatively low-tech and low carbon

alternatives to a range o processes that areusually extremely energy intensive, such asair-conditioning and solar desalination o saltwater. These innovations have attracted theattention o the major Chinese real estatecompany, Vanke, and Masdar eco-city in thePersian Gul .

Lyuan is a major manu acturer o electricbicycles and was the frst Chinese companyto develop an e-bike. The e-bike is a hugelypopular orm o transport in a country in whichcommuting distances are growing as peoplemove to the burgeoning mega-cities but cars

are too expensive and, in any case, ace dailygridlock. 120 million e-bikes are estimated tobe on Chinas roads, and Lyuan is a majorplayer in this market. And with annual savingso about 1 tonne CO2e per year, this adds up toa huge overall saving in emissions, even be oresystemic e ects o discouraging private carownership are included.

Pearl Hydrogen is also targeting the e-bikesector, amongst its various products, but usingits innovative, but low-cost and simplifed, uelcell technology. Recognising the extraordinarychallenges associated with the amiliar goalo a uel cell vehicle that could compete withexisting car models, CEO Brian Tian and teamhave been ocusing on novel uses or their

uel cell, including providing back-up power totelecom base stations needing the guaranteeo uninterrupted power supply (UPS). And incollaboration with an Italian partner, they havebeen busy creating a ull energy system ortheir uel cell bicycle that allows productiono the hydrogen uel rom high pressureelectrolysis o tap water in the users home.

Shengchang Bioenergy is making high-quality pellets rom agricultural residues that

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would otherwise simply be burned in the feld,as well as the stoves and boilers to maximisethe e fciency o combustion. By o ering anattractive substitute or current coal burners,there ore, a double emissions reduction isprovided. Furthermore, by positioning pelleting

actories to service armers within a short 20

km distance, rom whom the stalks and husksare also sourced, Shengchang is establishing amodel o reliable and locally-sourced energy.

ZNHK (Beijing Sin-entech) o ers a waterpurifcation system that allows the high-temperature recycling o water in industrialprocesses. By keeping the water at elevatedtemperatures, energy that is normally wastedthrough cooling and reheating the water issaved, while the purity o the fltered watermeets the highest national standards. And byallowing or e fcient water recycling, the waterdemands o the industrial processes are alsoreduced. Cost savings rom reduced energy andwater use typically allow recovery o the capitalexpenditure o ftting the equipment withinone year.


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Contents

Game-Changing ChinaLessons rom China about Disruptive Low Carbon Innovation

Part 1: The case for disruptive low carbon innovation in China 8 1.1 Climate change, low carbon innovation and the crucial case o China 8

1.2 From silver bullets to systems transition 8

1.3 Disruptive low carbon innovation is an overlooked opportunity or 9 China (and the world)

1.4 Low carbon challenges are signifcantly di erent in China 11

Part 2: Lessons from China for low carbon innovation 13

2.1 Follow existing opportunities, dont wait or per ect technologies 13

2.2 Enable new relations 16

2.3 Policy must keep pace 21

2.4 Engage with the globalisation o innovation 25

2.5 Four principles o low carbon innovation revisited 27

Part 3: Towards disruptive innovation policy 28

3.1 Lessons or low carbon transition 28

3.2 Iterative innovation and institutional learning 30

Appendix: The Chinese low carbon game-changers 36In alphabetical order (English):

GEI 36

Himin Group 38

ISAW 40

Lyuan e-bikes 42

Pearl Hydrogen 44

Shengchang Bioenergy 46

ZNHK (Beijing Sinen En-tech) 48

Acknowledgements 50

Names 50


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Part 1: The case for disruptive low carbon innovation inChina

1.1 Climate change, low carboninnovation and the crucial case of China

As we enter the new decade, it is clear thatwe are living in a period o tectonic socialupheaval. Three important trends can beidentifed that converge in an issue o singularglobal signifcance: low carbon innovation inChina. First, climate change remains the singlegreatest global challenge, regardless o thecurrent overheating o controversies aboutthe science, demanding an unprecedentedtrans ormation o global socio-economicactivity towards low carbon social systems.

Indeed, global heating (as James Lovelockmore bluntly describes it) is merely one part oa broader ecological crisis that demands urgentbut long-term action. 1

Secondly, the rise o China is entering anew phase in which its global e ects arebecoming increasingly apparent. This hasbeen particularly accelerated by the GreatCrash o 2008 and its continuing all-out

or the developed economies and theirgeopolitical dominance, especially the US.Chinese demands will thus progressivelyshape geopolitical debates, regulations andinstitutions. As the COP15 meeting o theUNFCCC in Copenhagen last Decemberdemonstrated, this is already the case regardingclimate change. And, indeed, China is alsopivotal regarding this global challenge. It isnot simply that Chinas absolute emissionshave overtaken the US to become the largestin the world and are continuing to grow at anextraordinary pace. But also, the incrediblerate o economic growth, investment andsocial change in China provides an unparalleled

opportunity to develop and introduce systems-changing low carbon innovations. As a hugecountry acing severe environmental pressures

o its own, which will be hugely exacerbatedby runaway warming, China also has plenty oincentive to tackle these issues.

In doing so, China, like all countries, will needto develop signifcant low carbon innovation,which brings us to the third major trend. Newpoles o excellence in science and innovation(S&I) are rising around the world, trans ormingthe global geography o the globalisedknowledge economy.2 Furthermore, processeso innovation are themselves changing withthis globalisation o innovation, becomingmore mobile, dispersed but inter-related. 3

China is a principal agent and benefciaryo these changes, with numerous metrics oscience and innovation international peer-reviewed papers, graduate and post-graduatestudent numbers, expenditure on R&D in bothpublic and private sectors, patents, majorR&D labs o both domestic and multinationalcorporations etc. growing at an extraordinarypace. Furthermore, these improvements arethe result o intense policy e orts to build aninnovation-based economy by 2020 withglobally competitive capacities or indigenousinnovation ( zizhu chuangxin ).4 There is everyreason, there ore, to expect that Chineseinnovation capacities will continue to grow andthat China will make major contributions to aglobal low carbon transition.

1.2 From silver bullets to systemstransition

Given the sheer size o China, however, manyo these S&I statistics are extremely di fcult

to interpret as they may still be small whenconverted into relative fgures or may conceallong tails o weak per ormance.5 It must not

1. Lovelock, J. (2006) The

Revenge o Gaia. London:Allen Lane.2. Leadbeater, C. and Wilsdon,

J. (2007) The Atlas o Ideas:How Asian Innovation CanBeneft Us All. London:Demos.

3. Bhid, A. (2008) TheVenturesome Economy.Princeton, NJ: PrincetonUniversity Press.

4. State Council (2006) NationalMiddle- and Long-TermScience and TechnologyDevelopment Plan (2006-2020). Beijing: State Council;OECD (2008) OECD Reviewso Innovation Policy: China.

Paris: OECD.5. Wilsdon, J. and Keeley, J.

(2007) The Next ScienceSuperpower? London:Demos.


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be orgotten that China is still a developingcountry. Indeed, just as the US economy (letalone its military) continues overwhelminglyto dominate all other countries and is still overtwice the size o Chinas with a populationone-f th as big, caution is needed not toexaggerate the current strength o Chinas

science and innovation.Moreover, innovation is much more than iscaptured in these statistics and other crucialelements o a dynamic innovation systemare developing more slowly in China. Inparticular, hi-tech innovation capacities, whileundoubtedly improving, are still comparativelymodest in most sectors. 6 Despite (or rather,precisely because o ) these modest capacities,Chinas current policy regarding low carboninnovation ocuses squarely on hi-techinnovation. To be sure, this ocus is achievingsome signifcant successes, as in Chinasglobal solar PV companies or its leading coalcombustion technologies, such as ultra-super-critical combustion or gasifcation (IGCC integrated gasifcation combined cycle).But these alone, even where they are widelyadopted (and over 90 per cent o Chinese PV iscurrently exported), will be unable to producethe wholesale transition to low carbon systemsthat is needed. 7

Indeed, the biggest problem with ocusing on

high-technology is not whether or not Chinahas the capacity or such innovation, importantthough this is (see below). Dealing with climatechange demands not just a marginal reductiono GHG emissions through energy e fciencyimprovements, but pro ound changes inevery aspect o day-to-day li e and thesocio-economic systems that underpin these.Innovation is undoubtedly needed to producethese changes, but this cannot simply be theintroduction o high-technology solutions.Rather, the nature and scale o the challengeo the low carbon transition and over a singlegeneration demands action and policy thatresponds to a much broader understandingo the innovation process than hi-techimprovements alone.

This perspective highlights how technologicalchange occurs in inextricable parallel withsocial change. Technologies are only adoptedwhere there are the social conditions tobe able to use them, and they are alteredand shaped in this process. Conversely,technologies introduce new capabilities to

social action, thereby trans orming social normsand practices. Innovation is thus always amatter o messy and complex socio-technical

change. A great deal o important innovation involving new institutions or social practices,the translation o existing technologies tonovel social contexts or unusual combinationso existing technologies is thus ignoredby ocusing on the cutting-edge o high-technology alone. Yet these alternative orms

o innovation will be at least as crucial in alow carbon transition. Indeed, an importantgeneral pattern in transition processes isthat the course o a transition is shaped to aconsiderable extent by the vicissitudes o thedevelopment o novelties in their early phaseswhen most actors in a system tend to see themas irrelevant.8 The innovations that will shapethe low carbon transition are thus most likelyto emerge rom unexpected, indeed apparentlyunpromising, sources.

1.3 Disruptive low carbon innovationis an overlooked opportunity for China(and the world)

In this context, one particular orm oinnovation that may be particularly relevant

or low carbon systems change is disruptiveinnovation. As originally developed by ClaytonChristensen and applied to low carboninnovation by a previous NESTA report, thisinvolves cheaper, easier-to-use alternatives to

existing products or services o ten producedby non-traditional players that targetpreviously ignored customers and/or use innovel contexts and combinations. 9 Disruptiveinnovation is thus primarily characterisedby a social redefnition o a technology, asopposed to improvement o the technologyalong established trajectories, and is thusan issue that is altogether di erent romwhether the innovation incorporates high-or low-technology. The point is rather that,in the frst instance at least, the disruptiveinnovation will likely o erlower than cuttingedge unctionality, according to establisheddefnitions, but or di erent uses and toneglected customers. Disruptive innovationthus exemplifes how con ating innovationwith high-technology is something o a redherring, albeit one with potentially harm ulconsequences.

The disruptive aspect o these innovationsre ers to their (potential) e ects on establishedfrms and even industrial political economiesand socio-technical systems. While such

social redefnition o technology o ten seemsunremarkable to start with, in setting o onan alternative path it possesses the potential

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6. Suttmeier, R.P., Cao, C . and

Simon, D.F. (2006) Chinasinnovation challenge andthe remaking o the CAS.Innovations. Summer, pp.78-97; Jakobson, L. (Ed.) (2007)Innovation with ChineseCharacteristics. Basingstoke:Palgrave Macmillan.

7. For example, Assadourian,E. (2010) The Rise andFall o Consumer Cultures.Worldwatch State othe World Report 2010.Washington, DC: Worldwatch.p.7.

8. Elzen, B., Geels, F. andGreen, K. (2004) SystemInnovation and the Transition

to Sustainability: Theory,Evidence and Policy.Cheltenham & Northampton,MA: Edward Elgar. p.285.

9. Christensen, C. (1997)The Innovators Dilemma.Cambridge, MA: HarvardBusiness School Press; Willis,R., Webb, M. and Wilsdon,J. (2007) The Disrupters:Lessons or Low-CarbonInnovation rom the NewWave o EnvironmentalPioneers. London: NESTA.

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in the medium-term to challenge the existingbusiness models and become dominant. Thisis so even where such disruptive innovatorsmay never catch up with the technological

unctionality o ered by incumbent frmspursuing technological improvements alongestablished innovation trajectories.

Such a change o innovation trajectories isprecisely what is needed or a low carbonsystems transition and the importance osmall beginnings to such pro ound socio-technical change also resonates strongly withdisruptive innovation. This is not to argue thatlow carbon innovation and systems transitionare themselves synonymous with disruptiveinnovation. Indeed, much important low carboninnovation is precisely the opposite, basedon incremental but, in aggregate, signifcantimprovements along established trajectories.Rather, disruptive innovation is an important,but generally overlooked, element o the routeto the goal o a low carbon systems transition,and one moreover with particular relevance toChina.

First, regarding disruptive low carboninnovation per se , the exceptionally tight timeconstraints or the needed low carbon systemstransition entails that only the low-carbontechnologies that are already known can makea signifcant contribution to meeting the 2050

targets. They are already in the marketplace,close to it or close to being demonstratedat scale.10 In short, we must do the bestwith what we have. But rom the perspectiveo disruptive innovation, which makes useo just such established technologies, thismaximisation o climate impact need not belimited to current uses and amiliar sectoraldefnitions o these technologies. Rather,disruptive innovation o ers a potential routeto substantial improvements in the societalimpact o low carbon technologies that isnot dependent on their radical technologicalupgrade.

This argument becomes even more importantin the case o China. This is not just becauseChinas capacities or hi-tech low carboninnovation are not yet ully developed, asdemonstrated by the continuing dominanceo intellectual property ownership o majorlow carbon technologies by OECD-basedcompanies.11 But also because, on theother hand, Chinese companies are alreadytrans orming global competition through their

low-cost disruptive innovations, as businessscholars Ming Zeng and Peter Williamson haveshown.12

For instance, Haier has developed a range oridges with relatively low-tech adaptations

that serve a variety o niche, but highlyproftable, markets, including student rooms(doubling up as desks) and wine collectors.Similarly, China International Marine ContainersGroup (CIMC) has achieved unrivalled global

dominance in their industry through a low-coststrategy. Other examples o success ul low-cost disruptive innovators include car companyChery, piano maker Pearl River, consumerelectronics maker TCL, computer companyDawning, port equipment manu acturer ZPMC,universal joint manu acturer Wanxian etc. Thelist goes on and on.

While these and other examples listed byZeng and Williamson are not low carboninnovators (at least not in all cases and notyet), high profle examples o the latter arealso increasingly apparent. BYD is using itsglobal leadership in battery manu acturing andtechnology to develop low-cost electric carsand has won the attention (and investment!)o legendary investor, Warren Bu ett. HiminGroup, which we profle in more detailhere, is now a global leader in solar thermaltechnology, a sector dominated as a whole byChinese companies. But a large and growingnumber o small companies are emergingthat are not just selling cheap versions o

amiliar low carbon technologies, but are

developing innovative low-cost combinationsor applications o technologies and the socialor institutional innovations these require.

These initiatives have the potential to disruptestablished business models and industrialboundaries in ways that introduce the crucialelement o discontinuity needed or broadersystems transitions. By ocusing on low-costproducts and services or the Chinese market,this also has the advantage o developingtechnologies that are appropriate not only

or Chinese society but or other developingcountries worldwide. And with over 70 percent o total costs o abatement and hence lowcarbon investment to 2050 likely to come romdeveloping countries, servicing this marketwould also be to ocus on the major businessopportunity, not merely to make a virtue onecessity by targeting secondary sources odemand.13

A policy that e ectively supports the existingChinese competitive strength o disruptivelow carbon innovation would also expedite

a Chinese low carbon systems transition,responding to the unprecedented timescale.Conversely, banking primarily on the

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10. Royal Academy o

Engineering (2010)Generating the Future:UK Energy Systems Fit or2050. London: RAE. p.4.

11. Lee, B., Iliev, I. and Preston,F. (2009) Who OwnsOur Low Carbon Future?Intellectual Property andEnergy Technologies.London: Royal Institute oInternational A airs.

12. Ming Zeng and Williamson,P. (2007) Dragons at YourDoor: How Chinese CostInnovation is DisruptingGlobal Competition.Cambridge, MA: HarvardBusiness School Press.

13. Anderson, D. (2006) Costsand Finance o AbatingCarbon Emissions in theEnergy Sector. Notes andCalculations prepared orthe Stern Review. London:Imperial College. p.28.


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improvement o hi-tech innovation capacitiesalone will incur substantial (and climaticallyconsequential) delays, given the need todevelop institutional, social and culturalconditions that are hard to short-circuit.Similarly, incorporating disruptive low carboninnovation into policy could also support a

broader public redefnition o low carbon,away rom its current identifcation withexpensive equipment. This tends to embeda perceived opposition between low carboninnovation and socio-economic development,and hence to slow down the ormer, while itis clear that a low carbon shi t must attend toboth. China cannot and must not be orced tochoose between environment and economy,and disruptive low carbon innovation is animportant way to sidestep this alse choice.

Finally, disruptive innovation o ers the mostplausible route to world-beating companies,while simply pursuing existing leadersdirectly through hi-tech improvements alongestablished pathways sets up a perpetual gameo catch-up. Paradoxically, there ore, globallycompetitive hi-tech companies may be moree ectively ostered by sponsoring disruptivelow-cost innovations than by ocusing onhigh-technology itsel . For instance, thereis not a single example in the history otechnological innovation in the disk driveindustry o an entrant frm leading the industry

or securing a viable market position with asustaining [non-disruptive] innovation. 14 The competitive attackers advantage othese entrant companies was not regardingtechnology itsel but in the relative exibilityo success ul established frms versus entrantfrms to change strategies and cost structures ,not technologies so that the latter candisrupt or redefne the level, rate and directiono progress in an established technologicaltrajectory. This has signifcant implications ornational economic growth as much as it does

or business strategy, and this, in turn, is crucialor Chinas low carbon shi t.

1.4 Low carbon challenges aresigni cantly different in China

China is certainly to be applauded or itse orts regarding mitigation; its continuingand seemingly inescapable dependenceon coal and the unstoppable growth o itscar market overtaking the US in 2009 to

become the largest in the world beingthe indelible black marks against it. Energye fciency has improved signifcantly in recent

years, major re orestation and a orestationprojects continue and the new commitmentsto a urther 40-45 per cent improvement inemissions/GDP (as opposed to energy/GDP)intensity between 2005-2020 will be a majorachievement i they are met.

Similarly, policy and institutionalrearrangements, with the promotion oenvironmental protection to ministerial levelin 2008, a climate change White Paper in thesame year and the establishment o a NationalLeading group on climate change in 2007 anda National Energy Commission super-ministryin 2010, both chaired by Premier Wen Jiabao,show the importance the central governmentis attaching to these issues. Achievements inrenewable energy are also impressive, backedby the Renewable Energy Law, which aims

or 16 per cent renewable energy in 2020.For instance, the growth o the wind sector issimply staggering, heading or 100MW by 2020or double total global capacity only a ew yearsback, while big hydropower is the largest in theworld and growing (more than doubling rom142GW or 14.3 per cent o total electricity in2008 to 300GW or 21.2 per cent in 2020). 15 A signifcant percentage (about 40 per cent)o Chinas 2008-9 post-crash fscal stimuluso RMB 4 trillion (US$ 580 billion) was alsodirected to green sectors. 16

Yet there remains widespread presumption,amongst policymakers, business andcitizens alike, that low carbon innovation issynonymous with hi-tech solutions to problemso ossil uel ine fciency. This is undoubtedlypartly due to engrained conceptual associationsbetween technological sophistication andgeopolitical status. China is not simplyrising passively, but rather as the result o aconcerted national project. In this context,the identifcation o innovation, economicgrowth and global power with high-technologyenshrines the latter as the goal in itsel .That disruptive innovation may be, counter-intuitively, a more direct route to these goalsthan ocusing on high-technology itsel is thusone o the most important arguments in its

avour in the Chinese policy context.

In short, Chinas disruptive low carboninnovators are key national assets that needsignifcantly greater support rom policy. Howshould they be supported and what ormshould this support take? The original 2007report contains numerous insights regarding

this question and we re er our readers to it, asthese lessons remain as cogent and pertinentas ever in their original ormulation.17 But,

14. Christensen, C. (1997)

The Innovators Dilemma.Cambridge, MA: HarvardBusiness School Press.p.46-8.

15. Climate Group (2008)Chinas Clean Revolution.Beijing and London: TheClimate Group; ClimateGroup (2009) Chinas CleanRevolution 2. Beijing andLondon: The Climate Group.

16. Ibid.17. It was on this basis that

we held a workshop inHangzhou in December2009 to discuss disruptivelow carbon innovation inChina and introduce the

2007 report to a broaderChinese audience. TheExecutive Summary o the2007 report was translatedinto Chinese or this event.I you would like a copy,please contact David Tyfeld([email protected])or see the workshopswebsite: www.lums.lancs.ac.uk/lowcarbonchina . Wethank BIS or unding thistranslation.


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ocusing on the UK and on British examples,the original report does not respond to thesignifcantly di erent context and challengesregarding low carbon innovation in China;di erences that re ect Chinas exceptionalrates o urbanisation and industrialisation, itssocio-economic structure, political constitution

and governance institutions and distinctive andancient cultural history. Nor does it explore theargument that disruptive low carbon innovationmay be particularly important or developingcountries such as China. These are the tasks othis report.

We have already encountered some o theways in which the Chinese context alters theargument regarding disruptive low carboninnovation. First, there is the issue o currentinnovation and absorptive capacities, especiallyregarding hi-tech innovation. These could belargely taken or granted in the UK report (atleast in those industries where the UK hassignifcant presence), but this is not the casewhen moving to China. Indeed, secondly,developing hi-tech innovation capacity isa matter o earnest concern in the Chinesecontext, due to its connection with thepreeminent national priority o socio-economicdevelopment, as just discussed. Thirdly, then,issues o development must be placed at thevery heart o discussion about low carboninnovation in China, while they are o ten

overlooked or tacitly presumed in developedcountry debates. Similarly, the internationaldimensions o low carbon innovation, includinginternational collaboration, are also moretransparently important in China though theyundoubtedly matter in the UK too.

Last, and by no means least, the very termdisruptive innovation needs to be translatedsensitively given strong negative connotationso the standalone word disruptive that areabsent in English. In the Chinese game Go,a single unexceptional move may alter thedirection o play such that it turns out toswitch the game in a players avour, no matterthe odds against him when it is played. 18 This move is described as poju ( ) orgame-changing. In what ollows, we presentthe lessons rom seven Chinese low carbongame-changers in the hope that it will catalyzesome even bigger changes towards low carbonsystems both in China and beyond.

2

18. We thank Ye Weijia or thissuggestion.


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Part 2: Lessons from China for low carbon innovation

2.1 Follow existing opportunities, dontwait for perfect technologies

Chinese water wheelsMany uturistic visions o a per ectlysustainable economy have evoked the ideao one based on hydrogen, with drinkablewater dripping rom your cars exhaustpipe. Such utures conjure up images ohyper-modern, gleaming cars and buildings,re ecting the blinding sun o the clear, bluesky. An unassuming industrial hanger in southShanghai, reached a ter a long smoggy driveon the citys congested highways, thus seems

an unlikely birthplace or this hydro-topia.Pearl Hydrogen, however, is tackling some othe most enduring problems o the hydrogeneconomy head-on or rather through the backdoor.

Across the world, and or many years, there hasbeen a great deal o research and commerciale ort expended on the development o uelcells. The usual goal is to test various typeso uel-stack, electrolytes and catalysts inorder to create a uel cell that has somechance o meeting power demands o existingtechnologies in a way that is economicallyviable the quintessential challenge being a

uel-cell vehicle (FCV). Yet this goal remainselusive, even be ore the massive challengeo construction o the associated hydrogenin rastructure is considered. As a result, manyhave written hydrogen o or a low carbontransition, both or a near-term transition andeven in the long term.

Perceiving these problems, however, Pearlset out to tackle the problem in the opposite

direction, seeking out proftable opportunitiesor applications o their uel cell. Finding

such opportunities certainly depended upon

technological development, but not in termso improved unctionality along establishedtrajectories. Rather, the goal was the creationo an e fcient low-cost uel cell that couldservice power needs that had been overlookedin the past. The key here was the coretechnology, developed by CEO Brian Tian romthree years o work at another Chinese uel cellcompany: a catalysis-coated membrane. Settingout on his own in 2006, Brian noted that the

uel stack could be hugely simplifed with thismembrane by using the same channels bothto provide air needed or the reaction and tocool the uel stack. This air-cooled uel cell

could then dispense with the usual water-cooling apparatus, which added considerablebulk, expense and accessory energy costs.Moreover, it transpired that this lower-cost uelcell remained highly e fcient. By simpli yingthe technology in this way, hitherto neglectedopportunities or uel cells opened up.

In particular, ollowing market researchwithin China, three opportunities presentedthemselves: a uel cell bicycle and nichetransportation ( or example, orkli t trucks,gol carts, small boats); back-up emergencygenerators providing uninterrupted powersupply (UPS); and a mobile or hand-held powersource. In each case, Pearl has developed uelcells o su fcient power (ranging rom 200W

or the electric bicycle up to a 10kW stack, dueout this year) or the relevant application andhas incorporated these into products, such asthe bicycle or the hand-held power source,through collaboration with other companiesand consultation with users, that are attractiveto their target markets.

The strategy also appears to be working.The uel cell bicycle (called Green Angel anddeveloped with Chinese bicycle company

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Celimo whose name means horse thatgoes or 1,000 miles) was demonstrated atZaragoza International Expo in 2008, and isnow on sale in China and in Europe. Pearl alsoattracted the attention o an Italian companylisted on Londons AIM stock exchange, Acta,that produces a high-pressure electrolyser.

Combining orces, the two companies aredeveloping a ull-system solution, with homegeneration o the hydrogen uel sourcethrough electrolysis o tap water. Furthermore,

uture plans are to make this electrolyser runon solar power, closing the circle to make a

ully renewable energy mobility option.

Similarly, regarding the UPS uel cells, contractshave been signed, via private sub-contractors,with major Chinese telecom SOEs and othertelecom substations across south east Asia,based on their 5kW stacks showing competitivepricing and reliability. Demonstration plantswill be put into operation in 2010. The hand-held mobile power source is also now on sale,providing a low-cost and low carbon option

or power that could serve numerous markets,including in remote areas o China. Finally,through collaboration with a team at ImperialCollege, London, Pearl is also involved in thedevelopment o a racing car or the FormulaZero race, providing the uel cell on which thecar runs. By building up the strength o theirtechnology via the opportunities or proftable

learning based on their low-cost uel cell, Pearlmay yet create the FCV o so many dreams.

Standing innovation back on its feetPearls innovation certainly involves indeed,depends upon technological developmentbut it has not been led by a vision thatinnovation amounts to technology alone.Un ortunately, this remains the dominantview, including in policy circles, which thereby

ocus almost entirely on advances at thecutting-edge o high-technology to theneglect o all other orms o innovation. As thepredecessor to this report made clear, narrowlydefning innovation as high-technologyalone is associated with a pipeline or linearmodel that displays awed but ingrainedassumptions about the relationship betweenscience, technology and innovation, in whichscience leads to technologies which are in turnsuccess ully commercialised as innovations.19

Such a model discounts many crucial actorsin innovation and ignores many areas in whichinnovation occurs. In particular, it overlooks

the irreducible social dimensions o innovationprocesses, where technologies are shapedand their uses defned within their diverse

social contexts. Much innovation thus involvesestablished technologies being used in novelways or in novel combinations that serve (andcreate) particular social needs and demands,as well as much low- or medium-technologyinnovation. In these circumstances, it is thesocial, institutional and policy contexts o

innovation that are at play and it is just theseactors, rather than technological challenges,that o ten also explain the ailure o newtechnologies to be taken up and to ourishbeyond their original niches.

Focusing only on the one-dimensionalquestion o technological developmentalso systematically excludes considerationo social actors in innovation processes.Thus innovation is generally understood interms o new technologies ftting into pre-existing social systems, which are simplytaken as given. Yet the mutual interaction otechnological and social change means thatsuch a perspective is not merely incomplete,but likely to be erroneous in any given case.The success ul integration o new technologywill almost certainly require adaptation andaccommodation rom the social conditionsupon which it depends. Ignoring the socio-technical system, there ore, is a recipe orinnovation ailure.

This is evidently a particularly important

problem or low carbon innovation and policy.For not only is a pro ound trans ormation osocio-technical systems required but there isalso exceptional time pressure. There is thussimply no time or policymakers to discoverthat their avoured high-technology lowcarbon projects have ailed or these reasons.The uel cell vehicle is a classic example, butit is by no means alone. Carbon capture andstorage (CCS) (both or electricity generationand or industrial plants), GM crops to tacklemitigation and adaptation, bio uels (especially2nd generation), nuclear power and evengeoengineering are all (or dependent upon)high-technologies that proponents generallyhope will tackle global warming without theneed or signifcant social and institutionalchange.

This is certainly not to argue that suchtechnologies should themselves be simplydiscounted. For instance, given theoverwhelming dependence o the Chinese gridon coal (but also India and increasingly theUS and the EU as well), CCS would seem to

be absolutely necessary in the medium-termor signifcant GHG emission reductions. Butocusing on technology, as i it can simply be

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19. Williset al. p.14.


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slotted into existing socio-technical systemswithout innovation in those social andinstitutional contexts themselves, imposessignifcant costs and delays on low carboninnovation, while also neglecting the signifcantopportunities or (possibly pro ound) socio-technical change that can occur by ocusing on

what can be done with existing technologiesused in novel ways and contexts.

As Pearl demonstrates, this shi t away romcon ating innovation and high-technologyalone is also especially compatible with theneeds o a developing country such as China.In particular, ocusing innovation (includingthe technological development this involves)on the development o low cost alternativeswith strong, i not revolutionary, levels o

unctionality, provides the opportunity orthese innovators to continue to strengthentheir innovative capabilities. This is cruciallydependent upon o ering products that areeconomically attainable or their potentialChinese market, while also developingthese products in ways that are relevant orappropriate technologies or China and otherdeveloping countries rather than or developedones. It also builds on the current strengthso multiple Chinese companies, rather thandemanding they tackle hi-tech innovation

or which many are not yet equipped. And byexploiting existing market opportunities it is

also a route that is relatively sel -supportingand so does not have to wait or the signifcantfnancial and policy support on which many hi-tech low carbon innovations do depend.

Dezhou dynamismThere is perhaps no greater vision o successo this low-cost strategy than Himin Groupand its domination o the Chinese market orthe humble array o tubes that is the solarwater heater. Established in the early 1990sby ounder and CEO Huang Ming, Himin hasgrown to be a hugely proftable business withannual profts o RMB 68 million (7 million)in 2007. Chinese companies increasinglydominate the global market or solar waterheaters, and Himin is amongst the biggestcompanies, putting Huang Ming in the SundayTimes worlds top 100 green rich list in 2009.Its massive Sun-Moon Mansion in Solar Valleyis entirely heated by the solar thermal and solarPV building materials that cover its roo andwalls. The impressive e ect is redoubled onceyou remember you are in an unexceptional citythat ew have heard o in the West, albeit a city

o 5.6 million. The city o Dezhou, two hourssouth o Beijing by train in the coastal provinceo Shandong, however, itsel bears the marks

o Himins success. Solar thermal water tanksare increasingly common across China, but inDezhou they are ubiquitous, with more than90 per cent o amilies now using solar thermaltanks. And the solar thermal business andassociated industries is an increasingly centralpart o the local economy, employing 800,000

people or 30 per cent o the local work orce.Huang started the company ollowing adecade o working as a research ellow in aninstitute o the Ministry o Mineral Resourcesstudying petroleum drilling. Con ronted by theevidence o a looming energy crisis and thebig environmental problems associated with

ossil uels, he determined that he had to dosomething, his mission being to give backthe blue sky and the white clouds to the nextgeneration. He there ore set up a company,initially under the name o his researchinstitution, to develop solar thermal heaters in1992.

Lacking any policy support, the only viablestrategy was to rely on customers, fnding anexisting opportunity or a proftable business.Huang thus had to work with customersto develop products attractive to them,servicing their needs and at low cost. Thelatter was particularly important, given thatcost e ectiveness, including reliability o thetechnology, was the priority or the companys

frst customers o individual house-holders.This involved some technological developmento its own, with existing oreign technologiesunsuitable and too expensive or this nascentChinese market. Installation o the heaters wasalso o ered as standard inclusion in the price.As a result, a solar water heater was createdthat could last 20+ years and or which savings

rom reduced energy costs (i.e. zero) wouldreimburse the initial capital outlay in about 5.5years, with ree heating therea ter.20

Building on the successes o sales withinDezhou and across Shandong, Himincontinued to develop a variety o productssuitable or di erent climates ( or example,able to withstand the cold temperatures owinter) and di erent building or user types.Larger customers have also been targeted,including real estate companies, hotels andpublic buildings, such as hospitals. Himin hasalso established its own real estate company.Novel applications o solar thermal technologyhave been developed, creating ull centralheating systems that use intelligent electronic

controls, rather than just providing hot water,and integrating solar thermal with solar PV orvarious applications.

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20. See www.greenpeace.org/china/en/campaigns/countdown-to-copenhagen/dezhou-solar-story(Accessed 15/02/10).


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To be sure, as Himin has grown, the extent ogovernment support has also grown, and romall levels o government: municipal, provincialand central. For instance, rebates have beeno ered to customers or the purchase osolar thermal units, encouraging demand,while buildings over eight storeys are also

mandated to ft them during construction.Similarly, governmental support or R&Dprojects has been secured. Yet at only 3-5per cent o expenditure on capacity buildingwithin the company, Himins strategy is stillnot dependent upon government support,with strong market demand, particularly in thehome market o Shandong province.

Indeed, Huangs commitment to a strategythat is not reliant on government is such thathe takes an unusually positive and counter-intuitive line on the seemingly disappointingmodesty o what was achieved at the UNFCCCsCopenhagen con erence. A success ulcon erence, he argues, would only have bredcomplacency that would have underminedlow carbon e orts, while deepening themistaken presumption that governments cane ect a low carbon transition. Conversely, a ailure keeps up the necessary pressure onthe kind o bottom-up ventures that will in

act create a low carbon society. Where wasthe international agreement underpinningthe global success o mobile phones and their

trans ormation o the economy? he asksrhetorically.

2.2 Enable new relations

Scaling Snow MountainA consistent theme o the UKThe Disrupters21 report by NESTA was that low carboninnovation is not the sole preserve o largecompanies with strong R&D acilities. Rathera diversity o institutions and agencies arecapable o introducing potentially signifcantdisruptive innovations, including regarding thekind o institution itsel . Baywind, or instance,was profled not merely as a wind arm (hencelow carbon), but as one that is cooperativelyowned, hence a disruptive innovation withthe potential o stimulating the spread o

urther cooperatives across the UK, taking onresponsibility or their own devolved energyneeds and creating a distributed power systemin the process.

Such institutional or relational innovationsare equally crucial in the case o Chinese lowcarbon innovation, but with an added and

essential twist. As GEIs work in Yunnan shows,establishing new relations can also unlockpotential or socio-economic development.GEI itsel is something o an institutionalinnovation. Founded in 2004, GEI (GlobalEnvironment Institute) is one o the growingnumber o Chinese environmental NGOs,

a term that is an inexact translation othe Western concept as all NGOs must beregistered with the government. Similarly,unlike many Western NGOs, GEI is not just apressure group or policy think-tank. Rather, theparticular ocus o GEI is on the use o market-based solutions to environmental problemsto achieve sustainable development withdevelopment, not just sustainability, as a keyconcern. Their work thus incorporates directinvolvement and/or consultancy regardingdevelopment-related low carbon projects.

This has produced some considerable lowcarbon innovation, building the conditions

or low carbon growth even in the poorestparts o the country. While these areas arehighly unlikely to have the GHG emissionso industrial and urban areas (even average Chinese per capita emissions remain underone hal o the UKs and about one f th othe USs) and such emissions as are incurredrelate largely to basic subsistence rather thanconsumerist li estyles, bringing low carboninnovations to these areas allows them to

move towards development along low carbonpathways, rather than frst embedding high-carbon systems and then trying to escapethem.

In this context o relatively (or even absolutely)poor rural armers, the unsuitability oexpensive, cutting-edge hi-tech modes oinnovation is transparent. Accordingly, GEI hasworked on bringing low carbon technologiesto poor parts o China using a signifcantlydi erent model, involving the simultaneousdevelopment o new interventions, bothtechnological and social, at multiple levelsthat unlocks the potential or broader systemschange. Such complete systems change isalso particularly important in the context opoor and hence risk-averse individual armers,providing comprehensive viable alternativesthat do not demand that they change theirhabitual practices on the wish ul promise that abetter world awaits i only they took the leap.As a result, such development-relevant lowcarbon innovation has to involve prodigiouse orts involving multiple sites o both

technological and institutional innovation.

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21. NESTA (2007) TheDisrupters. London: NESTA.


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A striking example is provided by GEIs workin Lijiang in the south-western province oYunnan. This has incorporated not only theintroduction o biogas digesters, tailored tolocal needs, that reduce the carbon ootprint orural households, but also: the shi t to organicagriculture using the slurry rom the digesters;

the creation o cooperatives to increase accessto fnance; and a urther corporation actingas centralised merchant to the big markets onthe east coast. Each o these has been in tightinterdependency with the others attemptssimply to introduce the low carbon technologywould have oundered without the wider socialinnovations on which it has depended.

This is not because the technology itselprovides little rationale or armers to change.Biogas digesters have signifcant advantages,both or the armer users and regardingGHG emissions. By concentrating slurry in asingle place and an anaerobic environment (abiogas digester), methane production can bemaximised and the gas collected and used toservice the amilys heating and cooking needsin an e ectively inexhaustible and ree supplyo a natural resource that is otherwise wasted.Combustion o the gas is also much cleanerthan conventional coal or wood burning,signifcantly improving the living environment;a major beneft especially or women andchildren. Regarding emissions, methane is

also a GHG that is approximately 23 timesmore potent than CO 2. Hence by burning themethane rather than simply releasing it andsubstituting or coal or wood, including themining and transport and de orestation theserespectively entail, the overall carbon ootprinto the household is signifcantly reduced.

But adopting any technology is a risk, andone that many armers eel they cannota ord to take lest they fnd themselvesin a worse position than be ore. A ter all,technologies break down or do not work asplanned in the frst place. The technology mayalso be incompatible with local conditionsand practices, or have negative un oreseenconsequences in a particular social context.

In its work in Lijiang, GEI has had to tackle just such complex and multi-dimensionalchallenges. First, it secured fnancial assistance,including rom an American aid und, orintroduction o biogas digesters. Buyingdigesters rom a Hunan company, it thenset about adapting them to local needs. The

primary concern regarding choice o digesteris one o gas capacity, based on how manypeople and or what purpose the gas will be

used. A digester volume o 1m3 can produce0.15-0.3m 3 gas per day, depending ontemperatures (the higher the better), so that a10m3 digester is usually big enough to servicethe daily needs o a household o 3-4 people.This depends on local practices, however,including cooking habits. For instance, slow

cooking or long periods by Beijing armers, asopposed to the quick cooking o Tibetan meals,or the cooking o slops or pigs adds to thedemand or gas.

Other technological choices are also a ectedby local circumstances. Hence digesters in coldclimates, like Tibet, have to be buried deep inthe ground i the gas production is not to droptoo low. The choice o digester technology,o which there are at least our main types, isalso a matter o local pre erence. In the caseo Lijiang, a oating drum digester with aseparate gas storage tank was chosen in avouro the more common hydraulic pressureddigester on the basis that the latter demandedlaborious and dirty work to empty it every threeto our months; a task that was understandablyunpopular with the armers. By burying thedigester directly underneath the pig sties, slurrycould also be drained directly into the digester,though this evidently demanded space that notall armers had.

Finally, the fnancial costs o introducing

digesters are also borne by di erent partiesin di erent parts o China. In the Lijiangcase, hal the cost was paid by the Lijianglocal government, hal demanded rom

armers. Asking or outlay rom the armersthemselves thus required the introduction otechnology the armers took to be reliableand economically benefcial. Tailoring thetechnology to local needs in the ways justdiscussed tackled the ormer, but the latterinvolved a urther innovation: encouraginga shi t to organic agriculture o lucrativevegetable crops, using the slurry rom thedigester. 22 As organic agriculture is itsel a lowcarbon innovation, reducing the use o ossil

uel-based ertilisers that release N2O, a GHGapproximately 300 times as potent as CO2 thataccounts or up to 9 per cent o total emissionsin China, this also served to increase the lowcarbon impact o GEIs innovation.23

This shi t, however, itsel entailedtrans ormation o both agricultural practicesand institutions. Regarding institutions, GEI

acilitated the creation o new corporate bodies

that served three purposes; what GEI callsits three-in-one model. 24 First, it unlockedaccess to bank loans needed or the building

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22. We note that whether or

not this would preciselymeet the UK criteria to becalled organic agricultureis a moot point, but Chinatoo has its own criteria, withgradations that rise throughso-called green to organicagriculture.

23. Powlson, D. (2009)Improved nutrientmanagement in agriculture:A key contribution tolow carbon economy.Presentation at theInception Workshop othe China-UK Low CarbonAgriculture Project, Beijing,27 April 2009.

24. An Xin and Chen Zhiping(2008) Solving the issue osustainable development inrural China through a three-in-one mode. In: ChinaInsight: Rural Financing,Energy Conservation &Forest Resources. Beijing:Global EnvironmentInstitute.


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25. Stirling, A. (2009) Direction,

Distribution and Diversity!Pluralising progress ininnovation, sustainabilityand development. WorkingPaper 32. Brighton: STEPSCentre, University o Sussex;Tyfeld, D., Urry, J., Wilsdon,J. and Wynne, B. (2008)China-EU InnovationNetworks towards a Low-carbon Society. WorkingPaper. Lancaster: LancasterUniversity.

26. Smith, A., Stirling, A. andBerkhout, F. (2005) Thegovernance o sustainablesocio-technical transitions.Research Policy. 34,pp.1491-1510. p.1508.

o greenhouses and other equipment. Thistook the orm o at least six armers joining

orces in a rural credit cooperative, so thatany one o them had fve others o ering aguarantee or their loan; the demand o thebanks or lending. But even where the armingin rastructure or organic agriculture could

be fnanced, individual armers could notproduce enough to secure steady access to thewholesale markets or their organic vegetablesthat exist only ar away in the big coastal cities,like Beijing or Guangzhou. This, in turn, madereturns or the armers too unpredictable tomake the shi t to organic agriculture viable.Accordingly, two cooperatives were establishedto aggregate produce and a private share-holding company, the Snow Mountain OrganicCorporation, was established to centralisesales e orts o the organic produce. The twocooperatives contract with Snow Mountain,which thereby connects these remote armersto the organic vegetable markets and providesa source o su fcient and stable demand.

Regarding agricultural practices, be ore beingintroduced to the idea by GEI, the armershad not even heard o organic agriculture,let alone knew how to do it. The fnal pieceo the jigsaw was thus consultancy paid orby Snow Mountain with experts amiliarwith local conditions rom nearby YunnanAgricultural University to train armers in

organic agriculture, including the appropriategrowing regimes and technologies or di erentvegetables and varieties ( or example, Japaneseversus European versus Chinese cucumbers).

This set-up has survived since GEIs undingended in December 2008, with Snow Mountainstill selling organic vegetables rom Lijiang,higher armers incomes and low carbonagriculture. However, coordinating theestablishment o a ully unctional alternativesystem o low carbon agriculture evidently

aced signifcant hurdles. Moreover, therewere barriers at each stage o the process.For instance, encouraging the armers to

join the cooperatives demanded signifcantencouragement, given the historicalexperiences o collective agriculture. Voluntaryparticipation, choosing managementby election and a clear share system ordistribution o benefts was enough toovercome initial reluctance.

Furthermore, lack o governmental supportor the projects has also been a signifcant

problem. In particular, when the cooperativeswere initially established in 2006, there was asyet no law con erring legal status upon them,

though this ollowed luckily in October 2007.Finally, today signifcant challenges remain,including the lack o transport in rastructure

or transporting the organic vegetables to thebig city markets, and the discouraging e ectthis has on fnding investors in developingthe project and spreading the model urther.

Urbanisation and construction is alsothreatening some o the arms.

Development through new connectionsMainstream understanding o innovation, inits ocus on high-technology and associatedmetrics o patents and R&D expenditures,tends to overlook numerous important aspectso the innovation process. According to arecent report rom the STEPS centre at SussexUniversity, three such issues in particularmerit greater attention, namely direction,distribution and diversity the 3Ds.25 Theseare both important in their own right andparticularly signifcant regarding sustainability,this by defnition being a matter o sustainable

ows, a process not an end-state, and onedependent upon participation and in ormationinput rom across society. The call or broadercivic engagement in innovation at the hearto the 3Ds agenda is thus also the essence osustainability.26

By direction is meant the act that socio-technical change necessarily involves broader

normative social choices between possibletrajectories regarding the kind o society thatinnovation is bringing about. Following thisargument, distribution re ers to the questionso equity regarding who benefts and wholoses rom innovation trajectories the statusquo o gross and growing inequalities clearlybeing unjust and a signifcant contribution toecological unsustainability. Finally, diversityre ers to the act that addressing such issuesneed not presume a single and universallyapplicable best solution to any challengeaddressed by innovation. Rather, a diverse seto context-sensitive innovation trajectories isitsel a signifcant element o any attempt toaddress the prior two concerns.

Throughout these considerations, we mayalso note that a ourth D is clearly central:development. Direction and distributionconcern questions o who gains, while diversityre ers to the act that multiple models oinnovation are needed to re ect the similarlydiverse contexts and needs o developingcountries. Such prioritisation o development

is especially germane in the case o China.Despite the skyscrapers o Pudong, Chinaremains largely a developing country. Even


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while over 200 million people have risen outo poverty in China since re orm and openingup in 1978, there are still 150 million livingon under $2 a day, average armers incomesare $756 p.a. and GDP per capita is $3,200p.a. Furthermore, while the rural populationis shrinking steadily as people move to

burgeoning mega-cities, it still represents67 per cent o the population. Developmento rural and agricultural areas is one o thepriorities in the 11 th 5-year Plan, with centralgovernment attending to the san nong (orthree rurals o agriculture, village, and armer)to promote the development o rural areas.Environmental pressures, particularly romwater shortages, industrial pollution and landloss through urbanisation, are also seriouschallenges in rural areas that make sustainabledevelopment an imperative.

Socio-economic development is thus theabsolutely top priority o Chinese policymakersat all levels o government. Un ortunately,this is too o ten identifed with GDP growthalone, though the central government inparticular is driving changes to incorporateother essential issues such as environmentalsustainability and social equity under theslogans o circular economy and harmoniousdevelopment. But it remains the case that anylow carbon initiative that ignores developmentconsiderations is unlikely to take root in China.

Furthermore, the utmost importance o Chinato global debates about responses to climatechange does all developing countries and,indeed, the world the service o highlightinghow development questions are inextricable

rom a global low carbon transition.

Low carbon innovation that takes issueso development and hence direction,distribution and diversity seriously are thuscrucial in China. Engagement o poor armersin low carbon innovation, however, clearlyis not best served by ocusing on hi-techinnovation. Rather, as GEIs Lijiang projectillustrates per ectly, technologies are crucialbut they must be low-cost and tailored to thespecifc social needs o that locality: suggesting3Ls o low-cost, low-tech and low carboninnovation that give practical expressionto the 3D principles. The most important

orms o innovation, however, will o ten beinstitutional innovations, orging new butdependable relations that support the changein armers practices that are both socio-economically and ecologically sustainable,

creating the necessary context or success uluptake o the low carbon technology. ButLijiang also illustrates how mediation assistance

may well be needed to acilitate the ormationo these new relations, as in the establishmento the cooperatives and their connectionswith organic vegetable wholesalers. Disruptiveinnovation, e ecting a social redefnition otechnologies, can thus unlock development-relevant innovation and user-centred

innovation.From coal to cotton stalksLooking out o the window at the countrysidebelow as you come into land in Beijing orShanghai, one distinctive eature tells youyou are in China: the at blue and red roo so the industrial buildings. As their ubiquitytestifes, to talk o rural China as i it were

just a matter o agriculture is clearly mistaken.Rather, as MITs Huang Yasheng has argued,the great success o Chinese growth in the1980s is a story o growth by township andvillage enterprises (TVEs) engaged in rural-based industries. 27 To defne the countrysideand industry as mutually exclusive is thusto overlook the backbone o Chinas recentmeteoric economic growth.

The need to challenge understanding based onstrict sectoral divisions is even greater in thecontext o a low carbon transition. Systems-changing innovation o ten involves the blurringor crossing o amiliar boundaries betweenindustries and sectors, just as it involves the

ormation o new social relations. ShengchangBioenergys business, or instance, bringstogether industrial manu acturing, energy andagriculture in the orm o biomass pellets andtheir associated combustion equipment.

The established arming practice o burningcrop residues is a signifcant source o GHGsand soot in China, but tackling this problemneeds an alternative use or these stalks andhusks. Converting these residues, rom variouscrops, into easily handled and e fcientlycombustible pellets not only cleans thiscombustion process. But by putting it to use ulwork it can replace the combustion o coal byindividual armers and buildings, which itsel isone o the most ine fcient and polluting wayso burning the ubiquitous black stu . Giventhe sheer number o Chinese armers, shi tingtowards e fcient combustion o biomasspellets thus could have a major impact onGHG emissions and air quality, while creatingviable businesses and new sources o long-termemployment.

Shengchang Bioenergy has made this visionits own. Starting in 2006, CEO Fu Youhongstepped away rom his prior experience in

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27. Huang Yasheng (2008)Capitalism withChinese Characteristics:Entrepreneurship andthe State. Cambridge:Cambridge University Press.


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pharmaceuticals motivated (like the otherentrepreneurs profled in this report) byconcerns about the environment. Followingsignifcant research into the renewable energyoptions in Europe, he chose biomass as anissue that would be particularly signifcantin the Chinese context. The business has

two main technological innovations: in thepelleting process and in construction o boilers.Regarding the ormer, issues o temperatureand pressure control demanded signifcantadaptation and development o their ownpelleting technologies, including pre-treatmenttechniques or the raw material. Biomassburning boilers also had to be developed ithere was to be any demand or the pellets.Existing technologies rom overseas were tried,but were ound to be incompatible with pellets

rom local residues as these are not graded andstandardised as they are in Europe. Accordingly,the company had to develop its own boilers,based on technologies rom Beijings TsinghuaUniversity that already existed but were notbeing deployed or any commercial use.

As with GEI, however, the easibility othese technological innovations dependedupon orging new connections to trans orm

armers habits and to encourage them bothto deliver their residues or payment and thento substitute biomass or coal in their heatingand cooking. Researching the viability o

this business model in the initial markets oBeijings rural counties, a transport easibilitystudy was conducted with local governmentsupport, involving 2,000 students over thesummer o 2008. This established that all rawmaterials would have to come rom under20km or else armers would not consider itworth their while to make the journey. Thisconclusion, however, has added an extra lowcarbon dimension to Shengchangs businessstrategy, providing a model or a locallydistributed rural energy source.

Armed with this analysis, there were stillthe signifcant challenges o setting up theinstitutions and routines to persuade armersactually to change their behaviour. Routinedeliveries o biomass pellets were established,and local armers were in ormed o theeconomic benefts available rom selling theirresidues and trans erring to biomass burners.New relations were also established with villagegovernment committees, who were approached

or support in encouraging armers to changeover. Embedded systems o coal burning,

including government support or the industry,also acted as a signifcant source o inertia.

Shengchang has itsel received some signifcantsupport rom various levels o government.The general e orts o government regardingenvironmental protection have helped raiseawareness o the issues, encouraging demand

or the pellets. More directly, the centralMinistry o Agriculture and the Beijing city

government both underwrote the transporteasibility study and an arms-lengthassessment o the SO2 and CO2 emissionso the pellets, which showed signifcantenvironmental benefts in comparison to coal.Local government also provides a subsidy (ona per tonne basis) or sales o the biomasspellets. This subsidy has no explicit expiry date,but it could be ended at any time. It is likely,however, that the company will soon no longerdepend upon it as the business is growingwell and is shi ting towards proft. There arenow 160 employees working at three biomasspelleting plants (in Beijing and rural counties oBeijing municipality) with capacity or 20,000tonnes o pellets per year made rom woodchips, cornstalks, cotton stalks and peanutshells. These are packed into 50kg bags anddelivered to armers, or shipped by a speciallyadapted trailer or industrial customers.

In 2008, a machine actory was also establishedin Daxing Industrial Development Area insouth Beijing, producing biomass combustionequipment specifcally adapted or the pellets.

These include hot water boilers or individualhouseholds, industrial boilers ( rom 0.7 to 7MW) including or central heating systems, and o perhaps greatest symbolic importance apatented cooking stove costing under RMB200 (20) that directly competes with the coalbriquette burners that are a staple eature oChinese streets. More recently, the companyhas also moved urther upstream in its supplychain, establishing its own pelleting machine

actory in the northwest Beijing district oHaidian. This has already provided a urtherthree pelleting plants to rural districts oBeijing, thereby spreading the model o locallysourced biomass.

Finally, as awareness o the environmentalcosts o coal and oil, as well as experience onatural gas shortages in recent cold snaps ( orexample, November 2009), spreads, the market

or those looking or alternative and sustainablesources o energy is growing. Shengchang isthus receiving growing attention and salesrequests rom across the country, or bothpellets and boilers. Negotiations are ongoing

regarding fve investments to establish locally-sourced biomass, and the company is alreadycommitted to investing in pellet actories in

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Hubei (in central China) and Heilongjiang (inthe north east). Building strong links withthe armers who are both consumers o itspellets and boilers and suppliers o the residue

eedstocks has been, and will continue to be,the key to the business model.

2.3 Policy must keep pace

Green growth vs. Green lakesAmongst the grievous environmentalchallenges acing China, water is undoubtedlyone o the biggest and closest to crisis.Problems o scarcity, especially in the northand west o the country, are exacerbated byproblems o pollution, which reduce even

urther the amount o potable water availableto Chinas 1.3 billion people. Two imagescapture these problems particularly vividly:on the one hand, a dried up Yellow River, thecradle o Chinese civilisation and its agriculture,which now doesnt reach the sea or severalmonths a year; on the other, the algal bloomsthat have occasionally painted Tai Hu, thecountrys largest resh water lake, bright green.

While the ormer problem is largely dueto waste ul water practices in agriculture,which accounts or more than two-thirdso water consumption, Chinas burgeoning

industrialisation is both a signifcantcontribution to scarcity e.g. coal mininginvolves huge amounts o water, which maythus be the de facto limiting actor on coal,rather than GHG targets and the mostsignifcant cause o water pollution. Pollutedwaste-water, however, also contributes toclimate change in the orm o the energy that iswasted by releasing heated water into rivers, orpre-cooling to clean the water be ore dischargein order to meet environmental regulations.

Beijing Sinen En-techs (or Zhong Neng HuanKe China Energy Environment TechnologyCompany ZNHK) low carbon innovationdirectly tackles both o these problems througha system that allows high-e fciency cleaningo waste-water at elevated temperatures. Theclean, still-hot water can then be recycled backinto the industrial process, hence reducingenergy use in heating and cooling, cleaning thewater or eventual discharge and cutting wateruse.

The company is the brainchild o CEO Yang

Yucheng, ollowing more than 20 years workingon energy saving and conservation at the majorpetrochemical SOE, Sinopec. In the 1990s,

while still at Sinopec, Yang began to cooperatewith a pro essor rom China University oPetroleum (CUP) in research regarding energysaving technologies. This led, in 2002, to theestablishment o a research institute in Beijingdedicated to these issues. It was here thatYang developed the chemical basis o ZNHKs

core technology, a (now patented) chemicalmembrane and carbon fbre flter to removeinorganic and organic pollutants respectively.Without interest rom his CUP partner incommercialisation, he set up his own companyin 2004 to integrate the technology with other

amiliar technologies as a relatively low-costproduct or high temperature waste-waterrecycling.

Funding or this venture was not easy to fnd.In 2004, environmental issues remained quitelow on the political agenda and so there wasno interest rom government. Bank loans werealso unavailable, while venture capital wasstill only embryonic in China. Nevertheless,greatly concerned about resources saving andenvironmental conservation rom his work inthese felds, he managed to fnd some partnersand together they invested RMB 600,000(60,000) o their own money.

Since then, growth and investment have beenstrong. Establishment o the company wassoon ollowed by RMB 2 million o investment

rom a Xinjiang-based investment companyspecifcally interested in high temperaturewater recycling, which ZNHK alone wastackling. The company also succeeded in beingcertifed as a high-tech enterprise in BeijingsZhongguancun district in 2004 and, at the endo 2008, as a national high-tech enterprise.Both o these certifcations were crucial orthe business in these early stages, bringingsignifcant fnancial support that is reserved

or such hi-tech companies, such as taxbreaks, innovation unding and interest- ree orprolonged payback loans. Access to this crucialsource o fnance, however, depended entirelyupon the defnition o hi-tech employedby the government. It was thus o utmostimportance or ZNHK that the environmentallaw o 2004 recognised energy conservation

or the frst time as a sector capable o hi-techcertifcation.

This is not to suggest that ZNHKs business isdependent upon government support. Rather,in classic disruptive innovation ashion, it iso ering a low-cost alternative that services a

demand hitherto neglected as unproftable. Thestand-alone economic case or its innovationis also strong, with cost savings rom reduction

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o energy and water use o ering paybackon capital expenditure in most cases in lessthan 12 months. As a result, ZNHK reachedproftability in 2006-7, and its revenues grew262 per cent rom 2006 to 2008, reachingRMB 35 million in 2008. To date, over 20systems have been installed, mainly at SOE

petrochemical plants, including Sinopec, andsome chemical companies, though the serviceis suitable or many other industries, includingsteel, metallurgy, coal, textiles, ertiliser andpharmaceuticals, all o which have signifcantenergy requirements. This success has alsobeen recognised with various accolades andawards. For instance, in 2008 Yang and thecompany were a cover story in Forbes China,

eatured in an Al-Jazeera news report ongreentech in China and were listed in theDeloittes high-tech with high-growth Chinatop 50 and at 67 in the Asia-Pacifc top 500.

ZNHKs low carbon innovation is disruptive in anumber o ways. While it involves a new, hightechnology dependent on some considerableR&D, its commercialisation has been entirelydependent upon integrating this technologyinto a low-cost system, which also involvesestablished technology. Indeed, ZNHK is aper ect example o how disruptive innovation isan issue that is largely orthogonal to the hi- orlow-tech nature o the technologies it deploys.The substantive e ect o ZNHKs innovation

is also targeted at novel practices, disruptingthe standard waste practices o many industrialfrms and using amiliar technologies to recyclehot waste-water back through the industrialprocess. As the only patented waste-watertreatment that con orms with new, tightergovernment standards or water purity, theinnovation also crosses the boundaries betweenenergy, industry and water.

The particular lesson or low carbon innovation,however, is the crucial role o governmentand policy change to acilitate such disruptivelow carbon innovation. First, there is the utterdependence o the companys ortunes in itsearly stages upon the recognition or not oenergy-saving in the governments defnition ohi-tech business. Secondly, connections withthe state have also been a key characteristico ZNHKs success in the orm o its initialcontracts with SOEs. Certainly, a ter twodecades in the business, Yang had somestrong guanxi that he could mobilise in thecase o Sinopec. But this was by no means theonly reason or this strategy. The heightened

demands or environmental improvementsplaced upon SOEs by the central governmentand their consequent demand or energy

and resource e fciency measures also madethem particularly good clients. As SOEs, thesecustomers also had deeper pockets than privatecompanies may have had, with per ormancerather than value or money being the primaryconsideration. Using SOEs as initial customershas thus given ZNHK the time and experience

to improve their technology and services to thelevels necessary be ore turning to the privateand SME markets; or instance, reducing thetime or installation rom three months toone. In short, using the national incumbentsas primary customers has acilitated theemergence and strengthening o these novel,non-incumbent disruptive innovators.

Bike to the futureAn urban myth about China concerns a manwho walks past a park on his way to work onemorning, and returns at the end o the day tofnd a tower block. Whatever the veracity othe tale, there can be no doubt that Chinaslandscape and the society it expresses andsupports are changing at an extraordinarypace. Questions o development in China thusinvolve not only rural and agricultural issues,but also industrialisation (as per ZNHK) and aprocess o urbanisation the scale and pace owhich is without precedent in human history.

It is in transport, rather than construction,however, that the daunting and dauntingly

ast growth o Chinas cities is most easilyvisualised, in particular in the rapid emergenceand paradoxical stasis o the increasinglycongested urban highways. Only 20-plus yearsago, the vision o Chinese roads was still ariver o bicycles; the one-gear bicycle beingthe mode o transport o choice as cheapto buy and run, enabling o voluntaristicauto-mobility and aster than travel by oot.However, as incomes have grown, particularlyin the East, car ownership has also grown at anextraordinary pace, with a (pre erably big) carbecoming a sought-a ter status symbol. Theautomotive sector has also received signifcantcentral and local government support as anational pillar industry and a key elemento many local economies ( or example, inShanghai, Beijing and Guangzhou).28 As aresult, in January 2009 the Chinese car marketovertook the US to become the largest in theworld some 5-10 years be ore predictionspublished even in the previous December(though this was in part due to the post-crashcollapse o the US market).

As the perpetual tra fc jams o Beijing (andShanghai and Wuhan and Kunming...) andproblems o parking space demonstrate,

2

28. Thun, E. (2006) ChangingLanes in China. Cambridge:Cambridge University Press;Gallagher, K.S. (2006) ChinaShi ts Gears. Cambridge,MA: MIT Press.


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however, the density o population in Chinaraises serious questions about the possibilityo car ownership expanding much more. Evenmore importantly, GHG emissions rom Chinascars are also growing steeply. Indeed, carintensity per person equivalent to current USlevels would place Chinas cars consuming all

the oil produced in the world each year.29

Yetwith each passing day, China becomes moredeeply embedded into the car system, roadshave been rebuilt or vehicles, and bicycles the ormer low carbon technology o choice are increasingly driven (literally) o the roads.

Such growth is clearly not sustainable, inany sense o the term. So it is good newsthat bikes seem to be making something oa return, especially as it is in the disruptivelow carbon orm o the electric bicycle thatmay compete directly with the car. With 70per cent o electric power generated throughcoal combustion, electricity rom the grid iscertainly not (yet) carbon-neutral. Yet evenunder current conditions, a shi t rom oil toelectricity has a signifcantly positive e ect ontransport emissions.30 This is even more markedwhere the vehicle is a bike o several kilos asopposed to a car o several tonnes.

Lyuan (meaning green energy) is one othe oldest and strongest competitors in thismarket. In 1996, CEO Ni Jie visited a research

institute in Beijing where they were workingon electric vehicles. Struck by the technologybut also its di fculties, he decided thatdevelopment o an electric bicycle could be amore proftable route. Accordingly, back at hisbase in Jinhua, Zhejiang province, he beganto conduct R&D with the support o localcompany Jin Xin Technological Venture Co.This led to establishment o the company in1997, pioneering the sale o e-bikes in China.Financial di fculties were encountered in the

ollowing years, as problems with the batteryemerged, but with these rectifed, Lyuan hasexperienced strong growth rom 2001. Thissuccess has been acknowledged in a variety oawards including 2005 top 10 businessman inZhejiang the province that is o ten dubbedChinas Cali ornia or its entrepreneurialsuccess Zhejiang amous brand in 2006,and top 50 ast-growing companies by FastCompany magazine in 2007, alongside Nikeand Honda.

The company now o ers a w

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